Aerospace and defense company Alliant Techsystems Inc. (ATK) announced operating earnings of $2.10 per share for its second-quarter fiscal 2012 ended October 2, 2011, exceeding the Zacks Consensus Estimate of $2.04 but short of the year-ago earnings of $2.24 per share.
GAAP earnings in the quarter were $2.43 per share versus $2.91 per share in the prior-year quarter.
The difference between GAAP and operating earnings in the reported quarter was due to a $10.8 million (33 cents) gain from a contract resolution.
Total Revenue
Alliant's total revenue declined 8.3% to $1,109.4 million from $1,209.2 million in the year-ago quarter. Reported revenue also disappointed the Zacks Consensus Estimate of $1,156 million.
Segment-wise Revenue
Aerospace Systems sales decreased 11.6% from the year-ago quarter to $332.6 million. The decline was due to lower sales on NASA programs, offset partially by higher sales of strategic and commercial rockets, and commercial aircraft structures.
Armament Systems sales in second-quarter fiscal 2012 dropped 19% year over year to $358.2 million. The downside resulted from lower sales of military ammunition and the group's energetics programs, partially offset by higher sales of advanced weapons and the previously noted favorable contract resolution.
Missile Products sales in second-quarter fiscal 2012 were $169.9 million, up 6.5% year over year. The increase was mainly due to higher sales in missile defense programs.
Security and Sporting sales in second-quarter fiscal 2012 grew by 7.8% to $248.6 million, compared with $230.7 million in the prior-year quarter. The growth in revenue reflects stronger domestic and international demand for commercial ammunition, and increased sales of tactical accessories to the U.S. Department of Defense.
Operational Update
Total operating expenses of Alliant fell by 2.5% over the prior-year quarter. The year-over-year decline in expenses was primarily due to reduction in research and development as well as general and administrative expenses .
Accordingly, operating income grew 9.7% to $147.4 million from $134.3 million recorded in the year-ago quarter.
Alliant's net interest expenses increased 16.4% during the reported quarter to $23.6 million from $20.2 million in the year-ago quarter.
Financial Update
Total cash and cash equivalents as of October 2, 2011, were $270.8 million versus $265.7 million as of October 3, 2010.
Alliant spent approximately $73.9 million on capital expenditure in the quarter, up from $53.2 million in the prior-year quarter.
Long-term debt at quarter-end was $1.29 billion, flat with fiscal-end 2011.
Cash provided by operating activities in fiscal second quarter was $5.81 million, compared with $12.2 million used in the year-ago quarter.
Outlook
After the completion of the first half of fiscal 2012, the company narrowed its projection for the full year having considered the impacts from the Radford competition and on better visibility into the second half.
Alliant now projects fiscal 2012 sales in the band of $4.6 billion to $4.7 billion, down from the earlier range of $4.6 billion to $4.8 billion.
Alliant maintained its earnings forecast for fiscal 2012 between $8.50 and $9.00 per share.
The average tax rate for the full year is now expected to be 34.5%, up from the previous level of 34%.
The company expects to generate free cash flow in a range of $225–$250 million, with capital expenditures of approximately $130 million.
Peer Comparison
General Dynamics Corp. (GD), which competes with Alliant, reported third quarter earnings from continuing operations of $1.83 per share, surpassing the Zacks Consensus Estimate of $1.77. Results also comfortably beat earnings of $1.70 in the year-ago quarter.
General Dynamics generated total revenue of $7.85 billion in the reported quarter versus $8.01 billion in the year-ago quarter, reflecting a decline of 2.0%.
Reported quarter revenue however failed to meet the Zacks Consensus Estimate of $8.3 billion.
Our View
It is encouraging to see that effective cost management has aided the company in improving its margins. However, the reduction in contribution from the Aerospace Systems and Armament Systems businesses stemmed from lower NASA sales and military ammunition sales, inkling causes of concern.
On a brighter note, the company expects Armament Systems sales in the latter half of 2012 to exceed first-half results. We wait on the sideline until the company fulfills its objective. We presently retain a short-term Zacks #4 Rank on the stock, which translates into a Sell rating.
Based in Minneapolis, Minnesota, Alliant Techsystems supplies aerospace and defense products to the United States government agencies. The company also supplies ammunition and related accessories to law enforcement agencies and commercial customers.
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